Report: Former Wall Street Traders Warn of Crypto Lending Bubble

The availability of cheap, cryptocurrency-collateralized loans is growing unsustainably and could induce a crisis, two former Wall Street traders now working in crypto lending have told Bloomberg.

According to the outlet, the crypto-collateralized loan industry is a relatively new one that mostly emerged in the last two years during the post 2017 “crypto doldrums,” but which is already worth $5 billion USD.

Large holders of cryptocurrencies who bought in prior to the crypto crash of early 2018 are now avoiding selling a loss now by lending out their holdings for interest, using the digital assets as collateral for cash, or lending them to crypto short sellers.

Interests rates for these services started at 11% but now sit at around 5% APR.

The sources to Bloomberg warn that red flag features of the crypto lending space include loose lending standards, a profusion of available funds without enough demand and elevated risk-taking.

And though a $5 billion USD bubble bursting is unlikely to reverberate outside of crypto, it could induce sell-offs within, the sources warn.

“What keeps me up at night is not adoption or even regulatory uncertainty. It’s credit risk,” said Jason Urban, a former trader at DRW Holding and Goldman Sachs now running the DrawBridge (Crypto) Lending in Chicago. “The torpedo below the waterline is an MF Global-Lehman Brothers type event.”

Michael Moro described crypto lending at his firm Genesis, which has provided about $2 billion in cryptocurrency-based lending to businesses since March 2018.

There, a borrower will typically post $1.2 million in collateral in order to borrow $1 million in Bitcoins. If the price of Bitcoins go up while the loan is in place, the borrower must pay additional money or may see their holdings liquidated. If prices drop, borrowers may have some of their collateral returned.

Moro told Bloomberg that he wonders whether some borrowers understand the risk, and said he sees, “more competition, and that leads to prices that don’t make sense relative to the risk and collateralization.”

Alex Mashinsky of the crypto lending platform Celsius Network, which also claims to have $2 billion in crypto loans circulating, said strong compliance is in place there and that his loans go mostly to institutions.

Mashinsky rather pointed a finger at crypto exchanges offering highly-leveraged trades to inexperienced investors as the main source of risk that could lead to a crypto price meltdown.

Seychelles-registered crypto exchange BitMEX, for instance, offers up to 100x leveraged trades of Bitcoins and other cryptocurrencies and is known for “rekking” speculators in devastating liquidations.

BitMEX CEO Arthur Hayes has been caught on tape referring to crypto retail investors as “degenerate gamblers” that pushed his business out of obscurity. BitMEX cofounders Hayes, Ben Delo, and Samuel Reed have all allegedly become crypto billionaires.

According to CoinSutra, leveraged trading has also been made available at Binance (20x), Huobi (3x), Kraken (5x) and Poloniex (5x) cryptocurrency trading platforms, among others.

Zac Prince, CEO of crypto-lending platform Block-Fi also told Bloomberg that his firm observes strict standards in lending, and Antoni Trenchev, co-founder of Nexo, said his platform recommends loan-to-collateral ratios of no more than 50%.

Matthew Jobbe Duval, now developing a lending arm for token-issuance platform CoinList concurred with Moro, however, when he said he perceives risks that remind him of previous financial bubbles.

“The feeling of deja-vu is there: lack of regulation, cheap credit, minimal due diligence, and broad optimism,” he said.

Genesis Reports $746 in Crypto Lending/Borrowing Originations in Q2: Best Quarter Ever

Genesis, a digital asset trading and lending platform that is also a broker-dealer registered with FINRA, and a BitLicense holder with the New York State Department of Financial Services, reports that its services are booming.

According to a release from last week, Genesis’ Q2 performance was the best over as it topped $746 million in loans/borrowing – a 48% quarter over quarter increase.

Genesis states that total active loans increased to $454 million – a 149% increase over Q1.

In aggregate, Genesis has originated $2.3 billion since launching the lending business last year.

As one may expect, activity is dominated by the most popular crypto – Bitcoin, which garners 62% of all activity. But Genesis also points out that stablecoin borrowing increased by 100% in the quarter and now accounts for about 24% of active loan portfolios. Genesis says there is strong demand, especially among international investors, to borrow USD and other stablecoins.

As for lending, ETH loans accounted for 3.9% of the active loan portfolio, followed by LTC (3.7%) and XRP (2.5%).

Genesis focuses on trades for institutional investors and high net worth individuals looking to buy or sell large sums in digital currency.

Genesis is a wholly-owned subsidiary of Digital Currency Group. DCG is the parent company of Grayscale Investments, the largest asset manager in the digital currency industry, and CoinDesk, a media and events firm.

MC Payments Gains Control of Genesis Payment Solutions

Singapore-based MC Payments has acquired a controlling stake in Genesis Payment Solutions.  Genesis is a company that is used by Alipay, part of Alibaba, to acquire merchant accounts on its behalf. Genisis helps retailers process payments from Chinese tourists using Alipay – the country’s leading eWallet provider.

According to MC Payments, the agreement will allow MC Payments to gain direct access to Genesis’ merchant acquiring license with Alipay, along with its entire book of customers.  This will help MC Payments in its quest to boost customer acquisition and to expand its portfolio of services to its accounts.

MC Payment expects to add value by integrating its technology and operations, and using its regional business network to grow the newly acquired business in key target markets of Singapore, Malaysia, Thailand, Indonesia, Hong Kong and Australia.

Jong Kim Poh, Genesis’ Founder and Managing Director, will remain in charge of the company and also join MC Payment’s senior management team. Jong said;

“MC Payment is one of the fastest growing Fintech payment companies in Asia and I am honoured to be part of the team. Their strong reputation and operational strength, coupled with our status as an Alipay acquirer represents significant growth opportunities for MC Payment in the region.”

Anthony Koh, Founder and Group Chief Executive of MC Payment, said he was very pleased to keep Jong on board as part of the deal.

“The opportunity to partner with Genesis and Alipay in providing value to new and existing merchants is an exciting one, and I am confident that together, we can strengthen MC Payment’s position as a regional acquirer.”

According to MC Payment’s Chief Investment Officer David Z Wang;

“Chinese outbound tourists to the Asia Pacific region have been growing at 26% the past seven years with yearly expenditure at US$45 billion1. Alipay has almost 500 million users now and this is a great partnership for MC Payment to grow our payment solution products and aggressively target new merchants.”

Genesis has acquired hundreds of merchants that now accept Alipay as a payment method since its launch in 2014. These merchants include Metro Department Store, Sincere Fine Watches, Risis and OSIM International.

Founded in 2005, MC Payment has experienced accelerated growth over the past 12 months, raising S$9.5M in a Series B round and a strategic investment round, as well as opening new offices in Bangkok and Bali.

arkOS Crowdfunding An Open-Source, Raspberry Pi-Powered Google Fighter

What did you do when Google killed Google Reader, much to the chagrin of many of the service’s fans? Jacob Cook declared war.

Well, not literally. What he did do was begin to work on arkOS, a Linux-based operating system that aims to replace all-knowing and all-seeing services like Google Apps and Apple iCloud. When installed on a Raspberry Pi and connected to your home network, an arkOS installation can host a user’s email, web sites, files and more.

It is part of the CitizenWeb project, which aims to promote a “free, secure, & decentralized Internet for everyone.”

arkOS is an open-source platform for securely self-hosting your online life. It is designed to help its users take control of their personal data, and to make running a server as easy as using a desktop computer.

Cook has launched a custom crowdfunding campaign accepting pledges via Paypal, credit card and Bitcoin in hopes of affording himself the opportunity to work on arkOS full-time. At the time of writing the campaign has raised over $18,000 from 400 backers, 41% of a $45,000 goal.

Cook has secured some pretty impressive press in light of the launch of his campaign. He was recently profiled in publications including VentureBeat and ComputerWorld Australia among others.

citizen-webA utility called Genesis underlies the OS and allows interaction with the files on the server from any connected device…

arkOS’ central utility is called Genesis. Genesis is an application that interfaces with software running on your arkOS node and allows you to modify it with a easy-to-use and intuitive graphical interface. You have instant access to your decentralized web presence, hosted from home and kept off the “cloud.” Simply install the right plugins for the features you want in Genesis and it takes care of the rest. Genesis uses an extensible framework, meaning additional tools can be made to work with it, and installed/removed in a modular fashion. Genesis is a work-in-progress, originally forked from a prior project Ajenti.

The project is open-source and all of the code is hosted on Github and free to the public. In light of this, the actual OS is not available as a reward. It’s free. However, backers can secure rewards including t-shirts and a Raspberry Pi case signed by Cook.

Some detractors have expressed doubts over the need for this system. It stands to note that arkOS in the home relies on a home internet connection for availability. For many users that may be untenable, but Cook has an answer to the problem. He is working on making arkOS compatible with Virtual Private Server (VPS) environments, so theoretically an arkOS install could live on the same types of environments used to host web sites today.

Of course, all of this raises a question about security. In a post-Snowden world, expectations seem to be that Big Brother is watching Internet connections around the world. In short, there are doubts that any data transmitted over the web is safe from prying eyes anymore. Of course, this isn’t exactly what the campaign is about. This is more about taking on Google than the NSA.

The Raspberry Pi is a small form factor computer that has become increasingly popular among makers, hackers and tinkerers. It is also a popular basis for many crowdfunding campaigns. We’ve reported on Raspberry Pi-focused campaigns including the HDMIPi portable monitor, the RAPIRO robot and the BrickPi for LEGO enthusiasts.